The National Treasury has cut its target for external commercial loans in the next financial year by 41 percent, or Sh118.1 billion, signalling lower foreign debt service costs.
Estimates on revenue, grants, and loans for the 2024–25 financial year project borrowing from foreign financial corporations and other international financial institutions at Sh168.7 billion, down from Sh286.8 billion in the current fiscal year.
The lower target for commercial loans aligns with the government’s stance of pursuing concessional and semi-concessional funding, which is relatively cheaper than borrowing from commercial sources.
The position is backed by the availability of adequate financing from concessional sources such as the World Bank and the International Monetary Fund (IMF).
The World Bank recently approved the disbursement of Sh154.3 billion ($1.2 billion) to Kenya, while the IMF has an ongoing multi-year programme that lapses in April 2025.
In his Budget statement last week, Treasury Cabinet Secretary Njuguna Ndung’u underlined the planned slowdown in commercial borrowing over the medium term, even as the Exchequer seeks innovative solutions around upcoming debt maturities.
“Our medium-term debt management strategy aims at lowering the costs and risks in the debt portfolio. In this regard, the government will slow down the uptake of new external commercial debt and undertake liability management operations through debt swaps and other innovative solutions,” he said.
“The government will also diversify sources of financing through the issuance of Panda, Samurai, and Sukuk bonds. The government will maximise the use of concessional financing from bilateral and multilateral institutions to improve debt sustainability and boost our credit rating position.”
The Treasury, meanwhile, projects borrowing from foreign governments and international organisations at Sh8.3 billion and Sh103.8 billion, respectively, an estimate slightly higher than Sh7.6 billion and Sh95.3 billion in the fiscal year to June 30.
Part of the sizeable external commercial borrowing in the current year is attributable to liability management operations, which saw the Exchequer take a new Sh192.9 billion ($1.5 billion) Eurobond to buy back part of Kenya’s Sh257.3 billion ($2 billion) debut sovereign bond maturing on June 24.
A buyback is a form of the process by which the repurchase of issued securities from holders or investors before the set maturity of the debt.
Kenya plans another Sh128.6 billion ($1 billion) buyback of its sovereign bonds, which will likely be targeted at the Eurobond of a similar target size, which matures in February 2028.
The government is, however, yet to disclose the means to be used in the second 2024 buyback.
Overall, the National Treasury is set to trim total borrowing in its next budget, with the fiscal deficit expected to decline to 3.3 percent of the gross domestic product in the 2024–25 financial year from 5.7 percent in the current 2023–24 financial year.
In absolute terms, the fiscal deficit is set at Sh597 billion from Sh925 billion previously and will be funded from a combination of Sh333.8 billion in net external borrowing and Sh263.2 in net domestic borrowing.
The deficit, which has been deemed overambitious by various analysts, is partly pegged on the government meeting or exceeding its revenue target set at Sh2.91 trillion for ordinary revenues or taxes and Sh426 billion in ministerial appropriation-in-aid.
